The U.S. economy lost 85K jobs in December, bringing the total to 7.6 million since the recession started in December 2007. Back month revisions also come into play as October job losses increased 16K while November’s posting improved by 15k. The November number now stands at plus 4K, the first positive employment growth two years.
The Unemployment Rate remained at 10.0%. Manufacturing and Construction took the brunt of the job losses for a combined total of 80K. Health care and the Private Service sector were the silver lining with positive job growth. The “miss” for most analysis’s came via job losses in the Government and goods producing sectors. One of the most disturbing figures is that 589K people quit looking for work, pushing that total to 1.85 million in just 4 months. While the report is “less bad”, it’s still not good.
Pre-release, the 10 year note and mortgage backs were off 7/32’s. On the print, MBS rallied, showing levels that were plus 5/32’s (net improvement of 12/32’s). The rally was short lived with current levels near unchanged. Stocks took the news in stride, selling off on at the open but clawing their way back as we speak (currently down 27 points on the Dow). With the Employment report much worse than expected, we see the underpinning of support for the bond market.
Mortgage pricing should at least hold its own but will continue to be volatile. Reason being is due to the volatility in the yield curve. Jaw boning from the Dem’s about another round of stimulus or a jobs package will continue to put pressure on the long end of the curve. Tax and spend is not our friend. At the front end of the yield curve, the Fed is firmly anchored at 0% and given continued high unemployment, cheap money from the Fed is here to stay.
What we need is private sector jobs growth to the tune of 250K per month. Until we see that, expect the economy to waffle around with so many cross currents you’ll feel like you’re in a dodge ball game. Technically, our charts are net positive for steady to lower mortgage pricing as neither side of the market (bull or bear) has strong signals. Oversold conditions and neutral ADX, combined with support holding at the 8 day moving average gives us a fighting chance. Hang in there it will get better.
